On November 11, 2020, New York became the latest state to enact a sweeping automatic renewal law (ARL), which takes effect in February of 2021. While numerous states have enacted ARL laws, which require specific rules for subscription-based programs, New York's follows California's lead in adopting one of the most stringent ARLs in the country. Given the increased competition to capture retail dollars from consumers, and the resulting increase in popularity of these lucrative automatic sales programs, businesses employing them should use this new law as an opportunity to examine their disclosures and processes to avoid potentially costly claims. If the experience with California's ARL is any indicator, New York could very likely emerge as the next hotbed of ARL litigation. Below, we set forth what businesses with subscription programs need to know, including how to comply with New York's ARL requirements while also protecting themselves under California's heavily-litigated ARL.
Imitation is the Sincerest Form of Flattery: New York Copies California
New York's Bill S1475A, which will be enacted as Art 29-BB §§527 & 527-a, is taken nearly verbatim from California's ARL, Cal. Bus. & Prof. § 17600, which, to date, has been the basis of dozens of lawsuits. Given the lack of defenses around the strict requirements, many California ARL suits have resulted in expensive settlements; by way of a recent example, online dating website Bumble settled a pair of ARL cases earlier this year for $22 million.
The New York and California laws both require businesses with automatic renewal programs to: (a) clearly and conspicuously disclose the terms of the subscription to customers; (b) receive the customer's "affirmative consent" to the terms; and (c) provide an acknowledgment to customers that also includes the terms. See Cal. Bus. & Prof. Code § 17602; Art 29-BB § 527-a.
The required terms include:
- Clear disclosure that the subscription or purchasing agreement will continue until the consumer cancels;
- A description of the cancellation policy that applies to the offer;
- How much the customer will be charged, how often, and whether and when that amount will change, and the amount to which the charge will change, if known;
- The length of the automatic renewal term or that the service is continuous, unless the consumer chooses the length of the term; and
- The minimum purchase obligation, if any.
Cal. Bus. & Prof. Code § 17601(b); Art 29-BB § 527-a(1). Additionally, if the subscription offer includes a free gift or trial, the terms must also disclose when and how much the customer will begin being charged, and how to cancel before incurring any charges. Art 29-BB § 527-a(1)(a), (c).
New York's new ARL—mirroring California's ARL—requires the check-out disclosure be "clear and conspicuous" meaning "in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language" – and "in visual proximity . . . to the request for consent to the offer." Cal. Bus. & Prof. Code §§ 17601(b)(3), 17602(a)(1); Art 29-BB § 527-a(1)(a). Most retailers do this by including a disclosure immediately above or below the "Submit Order" button that discloses the material terms listed above, and informing customers that by completing their orders, they agree to their terms.
A less intuitive section of New York’s law—also inspired by California—is the requirement for an acknowledgement email. Gen. Bus. Law, Art 29-BB § 527-a(1)(c). That is, after the customer signs up for the subscription, the retailer must "provide an acknowledgment that includes the automatic renewal or continuous service offer terms, cancellation policy, and information regarding how to cancel in a manner that is capable of being retained by the consumer." Id. To comply with California's identical requirement, most retailers have included this acknowledgement in a welcome email; however, it also is legally permissible to send the terms via a separate email, a mailed acknowledgement, or other methods of communication.
Finally, the New York and California laws require retailers to provide a toll-free telephone number, email address, "or another cost-effective, timely, and easy-to-use mechanism for cancellation." Art 29-BB § 527-a(2). Separately, the New York law provides that "a consumer who accepts an automatic renewal or continuous service offer online shall be allowed to terminate the automatic renewal or continuous service exclusively online, which may include a termination email formatted and provided by the business that a consumer can send to the business without additional information." Id. § 527-a(3). The courts have yet to interpret this requirement, which was added to California's ARL in July 2018. In the context of California litigation, plaintiffs have argued that simply providing an email address is insufficient for a customer to cancel "exclusively online," given the statute's example of "a termination email formatted and provided by the business that a consumer can send to the business without additional information." They argue that the law requires retailers to offer, e.g., a button that allows customers to easily opt-out automatically.
Enforcement of New York's ARL
The primary difference between the California and New York laws is the addition of Art 29-BB § 527-a(7), which expressly gives the New York Attorney General the power to seek an injunction, and permits courts to impose civil penalties of $100 per violation (or up to $500 per "knowing" violation).
Additionally, the New York law adopts California's "free gift" provision, which provides that if a subscription program is found to violate the ARL, any "goods, wares, merchandise, or products" sent to a consumer as part of the program "shall for all purposes be deemed an unconditional gift to the consumer, who may use or dispose of the same in any manner he or she sees fit."
New York's ARL expressly provides a private right of action to consumers. By contrast, on September 11, 2020, the California Court of Appeal held that California's nearly identical law did not, in fact, create a private right of action. (See here.) The court also recognized, however, that consumers could bootstrap their ARL claims under California's Unfair Competition Law (UCL), as long as the consumers satisfied the UCL's standing requirements. New York plaintiffs' lawyers will no doubt resist any attempt to restrict the private right of action, by attempting to re-litigate the same issues from California by claiming that New York's ARL provides a private right of action, or may similarly try to bootstrap litigation of ARL violations under New York's General Business Law.
New York's Different Requirements Under Current ARL
New York's soon to be enacted ARL is not the first such law in the state; indeed, the original ARL, N.Y. Gen. Oblig. Law § 5-903 will stay in effect notwithstanding the new law. However, Section 5-903 is much narrower than the new ARL, applying only to contracts "for service, maintenance, or repair to or for any real or personal property" in which the renewal period is longer than one month. Businesses subject to the law must provide a written reminder of the contract's automatic renewal provision to subscribers, which must be served personally or by certified mail between 30 and 15 days before a term expires. Unlike the new ARL, which applies only to consumer contracts, the original ARL also applies to commercial contracts.
Two-fer: Compliance with California's ARL Gives Head Start on Compliance with New ARL in New York
New York's soon to be enforceable ARL should serve as yet another reminder for retailers offering subscription programs to make sure that their disclosures and processes are up to snuff. The plaintiffs' bar will no doubt be keeping a close eye on businesses with automatic renewal programs for any slip ups on the requirements. However, the many similarities between New York and California's ARLs allow retailers to comply by using the same disclosures and processes.